ABA Section of Antitrust Law
Corporate Counseling Committee
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Substantial Compliance
• FTC v. Blockbuster No. 05-463. On March
4, FTC filed a complaint and motion for temporary restraining order against
Blockbuster to block consummation of its proposed merger with Hollywood Video
• FTC alleged that Blockbuster failed to substantially comply with the Second
Request issued by the FTC
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FTC v. Blockbuster,
No. 05-463
• FTC alleged Blockbuster’s response to Second Request was incomplete and inaccurate:
– Approximately 60,000 of 120,000 data points related to rental fees were incorrect
– Failed to provide data regarding late fees for over 4,000 out of a total of 4,600 stores
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FTC v. Blockbuster,
No. 05-463
• FTC alleged that needed these data for its economic analysis
• FTC notified Blockbuster of alleged deficiency in two letters and stated that statutory waiting period of 30 days (16 C.F.R. § 803.10(b)(2)(i)) had not begun to run
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FTC v. Blockbuster,
No. 05-463
• Blockbuster contended that any deficiencies were insufficient to give rise to finding of failure to substantially comply with the Second Request
• Blockbuster continued to assert that its initial certification was sufficient and that it intended to close the transaction as early as March 7
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FTC v. Blockbuster,
No. 05-463
• On March 9, FTC and Blockbuster agreed that Blockbuster would not consummate any transaction with Hollywood Video before March 21
• Ultimately, Blockbuster abandoned transaction, in part because of “the unlikely resolution of our request for regulatory clearance on an acceptable timetable”
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Remedy of Divestiture
• In the Matter of Cytec Industries Inc., Dkt.
C-4132, on March 1, FTC and Cytec entered a consent decree relating to
Cytec’s acquisition of UCB Surface
Specialties division
• Consent decree required Cytec to divest
UCB’s Amino Resins Business, including two manufacturing facilities
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In the Matter of Cytec
Industries Inc., Dkt. C-4132
• Consent decree allowed Cytec to close acquisition without having completed anticipated divestiture
• Provides Cytec 180 days to divest business at issue
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HSR - Unincorporated
Entities
• New HSR rules regarding unincorporated entities took effect
April 7, 2005
• New instructions and HSR
Notification and Report Form available on FTC website http://www.ftc.gov/bc/hsr/hsr.htm
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Merger Process Reform
• On March 28, FTC Chairman Deborah
Majoras gave presentation on state of the FTC
• She included a section discussing merger process reform
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Merger Process Reform
• Marian Bruno, Assistant Director,
Premerger Notification Office, will lead task force of FTC attorneys and economists to recommended ways to improve FTC merger review process
• Chairman Majoras invited
“everyone’s creative input and cooperation in this effort”
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Merger Process Reform
• FTC and DOJ Antitrust Division will hold joint retreat among their competition managers
• The retreat is intended to address best practices
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Merger Guidelines
Commentary
• Chairman Majoras also announced task force to develop Commentary on the Merger Guidelines
• Jeff Brennan, Associate Director,
Bureau of Competition, will lead task force, which will include staff from both the FTC and the Antitrust
Division
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EC Competition Law
• Neelie Kroes, European Competition
Commissioner, made several speeches over past two months regarding her views on European competition policy
• She emphasized that recent modernization has provided Commission with ability to actively look into out areas of particular concern
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EC Competition Law
• Sector Inquiries
– Commissioner Kroes announced new investigations into financial services and energy sectors
• “Changing hearts and minds”
– The Commission “need[s] to begin changing general perception of the competition rules”
– Explain why competition is good for consumers
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European Private
Enforcement
• Commissioner Kroes encouraged increased private enforcement in Europe and reported that Commission will present a Green Paper setting out options for improving the current system by the end of the year
• France just began work on legislation to allow U.S.-style class actions
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Criminal Developments
• Plea Agreement:
– On April 21, Hyhix Semiconductor Inc., Korean manufacturer of dynamic random access memory
(DRAM), agreed to plead guilty in federal court in
San Francisco to felony charge of conspiring to fix prices in DRAM market
– DRAM is most prevalent semiconductor memory product and provides high speed electronic storage and retrieval capabilities in variety of computer, telecommunication, and electronic products
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Criminal Developments
• Hyhix agreed to pay $185 million fine
– Third largest criminal antitrust fine in U.S. history
– Largest fine in five years
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Criminal Developments
• DOJ’s ongoing price fixing investigation in the DRAM industry has resulted in aggregate fines of over $346 million
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Criminal Developments
• Hyhix is second major semiconductor company after
German manufacturer Infineon
Technologies AG to plead guilty
– four Infineon executives serving prison terms
– three of those executives are German citizens
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Criminal Developments
• DRAM investigation highlights international scope of cartel investigators and DOJ’s continued success in obtaining jail terms for foreign citizens
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Criminal Developments
• Stolt-Nielsen v. United States, 352 F.
Supp. 2d 553 (E.D. Pa. 2005)
– Stolt provides transportation of bulk liquids in parcel tanker ships
– Stolt filed civil action to enforce its rights under immunity agreement in DOJ’s corporate leniency program
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Criminal Developments
– From August 1998 into 2002, Stolt had express agreements with its competitors to allocate customers
– Stolt’s in-house counsel had raised antitrust concerns in early 2002 and subsequently resigned in March of that year; later filed constructive discharge suit
– In December 2002 Stolt’s counsel met with DOJ who warned that if in-house counsel was fired for exposing antitrust violations, Stolt would not be admitted into amnesty program
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Criminal Developments
– Stolt was first company to approach DOJ regarding amnesty
– Stolt claimed it had heeded in-house counsel’s warnings and circumstances of resignation were not related to allocation scheme
– corporate leniency letter agreement signed
January 15, 2003, did not specify date of discovery of anticompetitive activity
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Criminal Developments
• Based on cooperation by Stolt, DOJ obtained guilty pleas from Odfjell and Jo
Tankers; companies, in the aggregate, paid fines in excess of $60 million
• On March 2, 2004, DOJ notified Stolt it was revoking agreement and revoking amnesty claiming Stolt’s participation in conspiracy continued until November 2002
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Criminal Developments
• Court held Stolt did not breach agreement
– Agreement did not specify March 2002 as date of discovery
– Government “got what it had bargained for” – successful prosecution of other conspiracy members and break-up of cartel
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Criminal Developments
• DOJ filed notice of appeal in Third
Circuit
• Initial brief due in May
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Legislative Criminal
Developments
• Senate Judiciary Committee reported bill (S.555) on April 14 to allow federal antitrust enforcers to remove any antitrust exemption from challenging collusive practices in price setting of petroleum products by OPEC members
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Legislative Criminal
Developments
• NOPEC Act response to continuing increase of gasoline and fuel prices
– designed to reverse series of federal cases holding OPEC’s price fixing activities governmental acts protected by the
Foreign Sovereign Immunities Act
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Legislative Criminal
Developments
• On February 17, 2005, Senate
Introduced S. 443 – “Antitrust Criminal
Investigative Improvements Act of 2005”
– Would permit wire-tapping for criminal violations of Sherman Act
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Criminal Developments
• March 30 address by Deputy
Assistant Attorney Scott Hammond:
– Effect of U.S. v. Booker would be limited on
Antitrust Division’s sentencing practices
– DOJ will continue oppose guidelines adjustments and departures not supported by facts or law
– Cautioned that “the risks remain high for noncooperating defendants”
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Legislative Criminal
Developments
– Deputy Assistant Attorney Scott Hammond testified before the U.S. Sentencing
Commission on April 12, regarding the proposed 2005 amendments to § 2R1.1
– Proposed amendments would implement increased Sherman Act maximum terms of imprisonment enacted as part of the
Antitrust Criminal Penalty Enhancement and Reform Act of 2004
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Legislative Criminal
Developments
• Proposed Amendments:
– Increase base offense level in § 2R1.1(a) from 10 to 13
– Adjust volume of commerce table in
§ 2R1.1(b)(2) upward reflecting increased levels of international conspiracy cases
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Legislative Criminal
Developments
• Proposed amendments would bring antitrust sentences into line with other white-collar offenses carrying similar statutory penalties
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European Criminal
Developments
• Commissioner Kroes in March 10 speech to International Bar
Association reported:
– Commission planning to institute new
Directorate devoted exclusively to cartel enforcement
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European Criminal Developments
• EC’s leniency program resulted in 49 applications for leniency in 25 different cases during 2004
• Leniency programs now in place in
17 member states; considering ways to facilitate leniency filings within multiple EU member states
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Robinson-Patman
Developments
• Reeder-Simco GMC, Inc. v. Volvo GM
Heavy Truck Group, 374 F.3d 701 (8 th
Cir. 2004)
– §2(a) discrimination claim brought by
Arkansas truck dealer
– Competitive bidding process in truck industry
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Robinson Patman
Developments
• Plaintiff contended Volvo refused to grant it concessions available to other dealers
– One instance where plaintiff claimed to have received smaller price concession than competing dealer selling to same end-user
– Sales where plaintiff won the bid but received smaller concession than given to other dealers in connection with sales to different end-users
– Unsuccessful bids when competing with non-Volvo dealers
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Robinson Patman
Developments
• Volvo argued:
– Unsuccessful bidder can not qualify as purchaser under the Act
– Failure to show reasonable possibility of competitive injury where no proof that lower concessions granted to other dealers resulted in lost sales to plaintiff
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Robinson Patman
Developments
• 8th Circuit affirmed jury verdict for dealer holding:
– Fact that dealer was successful bidder in some other instance sufficient to grant purchaser status to an otherwise unsuccessful bidder
– Plaintiff put forth sufficient evidence for jury to conclude its lost profits and sales were result of
Volvo’s discriminatory price concessions
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Robinson Patman
Developments
• Volvo raised following issues in its petition for certiorari:
– Whether an unaccepted offer that does not lead to a purchase can be the basis for liability under the
Act?
– Whether the Act allows for recovery of damages by a disfavored purchaser that loses sales or profits to a competitor that does not purchase from the defendant, but does not lose sales or profits to any purchasers actually receiving the benefit of defendant’s discriminatory prices?
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Robinson Patman
Developments
• Supreme Court granted certiorari on
March 7, 2005
– First RP case Court has taken since
Brooke Group in 1993
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Bradburn Parent Teacher
Store, Inc. v. 3M (E.D. Pa.)
• Private plaintiff brought class action against 3M on heels of Third Circuit’s decision in LePage’s v. 3M
• Plaintiffs moved for summary judgment on their monopolization claim
• Court denied summary judgment, but found that certain facts were established by collateral estoppel as result of
LePage’s case
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Bradburn Parent Teacher
Store, Inc. v. 3M (E.D. Pa.)
– relevant market was invisible and transparent tape for home and office use;
– 3M possessed monopoly power in relevant market;
– 3M willfully maintained its monopoly power; and
– 3M’s conduct harmed competition
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Bradburn Parent Teacher
Store, Inc. v. 3M (E.D. Pa.)
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Verizon Communications v.
Trinko
• In the year since Verizon
Communications v. Trinko, 540 U.S.
398 (2004), was decided by Supreme
Court, lower federal courts have consistently interpreted it to limit plaintiffs’ monopolization claims
• Two recent decisions continue that trend
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Covad v. Bell Atlantic
• On March 1, D.C. Circuit upheld dismissal of Covad’s claims against
Bell Atlantic
• The Court upheld dismissal of
Covad’s refusal to cooperate and price squeeze claims because they are barred by Trinko.
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Covad v. Bell Atlantic
• To survive a refusal to cooperate claim must allege either:
– “that the defendant had previously
‘engaged in a course of dealing with its rivals” or
– that it “’would ever have done so absent statutory compulsion’”
• Here, Covad made neither allegation
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Covad v. Bell Atlantic
• Price squeeze claims cannot survive where there is no duty to deal under the antitrust laws
• Thus, because Bell Atlantic’s duty to deal arose out of Telecommunications Act of
1996, and not antitrust laws, the price squeeze claim was properly dismissed
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Covad v. Bell Atlantic
• D.C. Circuit also upheld dismissal of
Covad’s false pre-announcement claim and its claim against Bell
Atlantic for prosecuting baseless and bad faith patent suit
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Covad v. Bell Atlantic
• Finally, court reversed dismissal of
Covad’s refusal to deal claim
• Court held that Covad could succeed on this claim if it showed that
“refusal to deal reflected [Bell
Atlantic’s] willingness to sacrifice immediate profits . . . in the hope of driving Covad out of the market . . . .”
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Greco v. Verizon
Communications (S.D.N.Y.)
• Putative class claim against Verizon for tying its local telephone service to DSL service dismissed because it was barred by Trinko
• Deciding case would insert court into the role of regulator, a step court was unwilling to take
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Greco v. Verizon
Communications (S.D.N.Y.)
• This was inappropriate according to the court because:
– It “runs a substantial risk of skewing investment incentives: the constantly changing competitive landscape makes it very difficult for a court to set a reasonable price for services;”
– Determining “the optimal configuration of services and prices” requires the court to act as a “central planner;” and
– “[R]emediation would require ‘continuing supervision of a highly detailed decree.’”
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State News –
Conspiracy Litigation
• Indirect Purchaser Class Actions
– In Romero v. Philip Morris Inc. (N.M. Ct.
App. No. 24,034), the New Mexico Court of
Appeals held antitrust injury to class members can be established based on generalized methodologies
– No need for precise calculation of damages on an individual basis
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State News –
Conspiracy Litigation
– Court found that proof of class wide injury presented was sufficient to grant certification
– Reach of decision and others like may be limited with enactment of Class Action
Fairness Act
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State News –
Conspiracy Litigation
– Decision upholds certification of class of consumers seeking to recover overcharges for alleged price fixing conspiracy among tobacco manufacturers during seven year period
– Plaintiffs’ expert estimated dollar amount New
Mexico consumers were damaged based upon publicly available sales and market data and concluded that the aggregate damages could be apportioned to class members based upon their smoking habits
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Schering-Plough v. FTC,
No. 04-10688
• Patent infringement lawsuit settlement agreements, in which a generic manufacturer either:
1. Receives anything of value; and
2. Agrees to suspend research development, manufacture, marketing, or sales of its product for any period of time.
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Schering-Plough v. FTC,
No. 04-10688
• Hatch-Waxman Act
– ANDA applicant submitting Paragraph IV certification must notify patent holder that it made certification
– Section 271(e)(2) of the Act permits patent holder to challenge ANDA application before patent expires
– Patent holder has 45 days to bring suit for infringement and FDA approval of ANDA is delayed 30 months
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Schering-Plough v. FTC,
No. 04-10688
• Hatch-Waxman Act – Cont’d
– If court finds patent is invalid or not infringed, the
30-month delay ends
– If court finds patent valid and infringed, approval date is set for on or after patent’s expiration date
– When listed drug is subject to more than 1
Paragraph IV certification, approval of any of
ANDAs is delayed until 180 days from earlier of first commercial marketing of drug under earlier application or date court determines that patent held by earlier applicant is either invalid or not infringed
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Schering-Plough v. FTC,
No. 04-10688
• Upsher Settlement - 1997
– generic competitor agreed not to enter the market until 2001
– Schering received licenses to market five unrelated Upsher products
– Schering to pay $60 million initial royalty plus milestone payments and royalties on sales
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Schering-Plough v. FTC,
No. 04-10688
• ESI Settlement - 1998
– second potential generic competitor agreed not to enter the market until 2004
– Schering paid $15 million for license to market 2 ESI products
– Schering also agreed to pay $5 million in legal fees and $10 million contingent on
ESI’s FDA approval
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Schering-Plough v. FTC,
No. 04-10688
• In April 2001, FTC charged Schering had monopolized market for oral potassium chloride supplements and engaged in unlawful restraints of trade in that market through Upsher and ESI settlements
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Schering-Plough v. FTC,
No. 04-10688
• ALJ findings
– ALJ found that Upsher payment was bona fide product license payment, not to delay generic
– ALJ found that there was insufficient evidence to show that ESI payment was for the purpose of delaying ESI’s entry
– ALJ also reasoned that Complaint Counsel was entitled to no presumption that Schering’s patent was invalid or that Upsher or ESI was not infringing the patent
– Lawful settlements of legitimate patent lawsuits
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Schering-Plough v. FTC,
No. 04-10688
• Commission’s Opinions
– Reversed ALJ decision
– Focused on entry dates absent payments
– Payments to Upsher and ESI were not legitimate license payments
• Standard of Review for
Administrative Agency decisions
– Substantial evidence standard
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Schering-Plough v. FTC,
No. 04-10688
• ALJ and Commission both applied rule of reason
• Based on Valley Drug Co. v. Geneva
Pharms., 344 F.3d 1294 (11 th Cir. 2003), court rejected application of per se and rule of reason analysis
• Both approaches “ill-suited” for patent cases because seek whether conduct has anticompetitive effect, and, patents, by
“nature, . . . create an environment of exclusion”
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Schering-Plough v. FTC,
No. 04-10688
• Court concluded:
– Upsher settlement payment was an “up-front royalty”
– Commission finding that Upsher license worth nothing overlooked nature of pharmaceutical industry
– Commission’s characterization of ESI settlement payments ignored nature of prolonged litigation process
– Payments to settle patent disputes are not inappropriate
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Schering-Plough v. FTC,
No. 04-10688
• Restraints are ancillary
• Objectives of patent settlements were efficiency-enhancing
• Public Policy
– Benefits of settlement of patent infringement litigation
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Independent Ink, Inc. v.
Illinois Tool Works, Inc.
• Federal Circuit considered tying claim based on defendant printerhead manufacturer’s requirement that computer printer manufacturers use only ink manufactured by the defendant
– Patented product – ink jet device for printing bar codes
– Unpatented product – ink
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Independent Ink, Inc. v.
Illinois Tool Works, Inc.
• Antitrust consequences of patent tying governed by Federal Circuit law, as are antitrust claims based on patent procurement or enforcement
• market definition and whether market power exists remain the purview of regional circuit courts
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Independent Ink, Inc. v.
Illinois Tool Works, Inc.
• Patent and copyright tying, unlike other tying cases, do not require an affirmative demonstration of market power
• Patent presumptively defines the relevant market as the nationwide market for the patented product itself and creates a rebuttable presumption of market power
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Independent Ink, Inc. v.
Illinois Tool Works, Inc.
• Defendant can rebut presumption in
Section 1 claim
• In Section 2 claim, plaintiff bears burden of defining market and proving defendant’s power in market
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Presenters
• Marc Machlin has extensive antitrust counseling and litigation experience, particularly with respect to regulated industries
• Barbara Mather, chair of Pepper’s
Litigation Department, has extensive experience in Section 1 and Section 2 litigation and defending government investigations
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Presenters
• Larry Shiekman is an experienced litigator of Section 1 and 2 cases as well as handling government investigations
• Barbara Sicalides, head of the Commercial
Litigation Group’s Antitrust Section, focuses her practice on antitrust litigation and counseling, mergers, compliance programs, government investigations and distribution disputes
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Contact Information
Marc D. Machlin Laurence Z. Shiekman machlinm@pepperlaw.com
shiekmanl@pepperlaw.com
202.220.1200
215.981.4347
Barbara W. Mather
Matherb@pepperlaw.com
215.981.4895
Barbara Sicalides sicalidesb@pepperlaw.com
215.981.4783
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